London Biscuit may have a bullish breakout

Background

London Biscuit Bhd ("Lonbisc") is involved in the manufacture & sale of confectionery and other related foodstuffs.

Recent & On-going Corporate development

Lonbisc has recent acquired a 20%-stake in Lay Hong Bhd, a listed company involved in poultry farming for RM9.85 mil. Lonbisc explained that the reason for the acquisition is to gain control and ownership of a major supplier to ensure adequate, regular and continuous supply of liquid eggs at "controlled prices" to meet its ongoing expansion plans.

In addition, Lonbisc is in the midst of assessing the feasibility of listing its principal subsidiary company, Kinos Food Industries (M) Sdn Bhd (“Kinos”) on the Alternative Investment Market on the London Stock Exchange. The successful listing of Kinos could give a boost to Lonbisc’s visibility amongst investors & thus could be a catalyst for a re-rating of Lonbisc’s share price.

Recent Financial Results

Lonbisc's last 4 quarters' performance has improved as compared to the preceding 4 quarters. During the periods under consideration, its net profit has increased by 17% from RM18.0 mil to RM21.0 mil while turnover has gained 24% from RM88.0 mil to RM109 mil.



Valuation

Based on the closing share price of RM1.95 today & its 4 latest quarters' EPS of 21.0 sen, Lonbisc is trading at a PE of 9.2 times. At this multiple, I believe Lonbisc is still trading below its fair value, probably by about 10-15%.

Technical Outlook

Lonbisc has broken above its downtrend line at RM1.75/80 in July 2006. For the past 4 months, the share price has not been able to surpass the strong horizontal resistance of RM1.90/92. Today, the share price has surpassed this resistance to close at RM1.95, albeit on relatively thin volume.


Chart: Lonbisc's weekly chart as at Jan 23

Conclusion

If the share price can maintain above the RM1.90/92 level, Lonbisc would have a bullish breakout & its uptrend may commence. We must await confirmation of this tentative breakout, hopefully supported by a more convincing volume.